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About Pricing Strategy

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VicFountain

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Jun 22, 2018
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How do you go about pricing your products or services?
In Microeconomics I've been taught the general supply/demand law and how pricing lower than your competitors increases the demand for your products.
But I guess this is only true for commodities and not differentiable products & services.

Dan Kennedy in his "Pricing Strategy" book explains how pricing low might 1. Decrease your potential profits and, 2. Create a "low-quality" image of your brand.
What do you think about all this?

I'm deep into cognitive dissonance right now.
 

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Johnny boy

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He’s right.

Pricing is based on a number of factors though. I run a lawn care company. We differentiate ourselves with a good presentation (white guy selling a lawn care contract wearing a polo shirt and showing up in a nice truck). We can price higher than everyone else this way.

Then, we present our prices monthly for a year long contract with services in the growing season only. This means we say “It will be $120 for 12 months with tax” and you’re paying $72 a visit when we are here for 20 minutes

Technically we are making almost $200 an hour but you would never sign up with us if we said “we charge $200 an hour”. See my point?

As for actually picking a certain price to present to the customer, it’s a mix of 1. The Max I think they are willing to pay 2. The minimum I’m willing to do it for to be decently profitable and 3. Avoiding regret.

If I think they’ll pay possibly up to $200 a month, and the minimum I’d consider doing it for is $120 a month, and we aren’t absolutely starving for new business but can easily take on a new customer, then a decent price might be right around $160 a month. You’re making some money. You’re not theoretically leaving a ton on the table, and you’re not going to regret your pricing in the case that they go with someone else, or they sign up and say “wow that’s cheap”. It’s a Goldilocks thing.

All of these heuristics can be traced back to economic principles like price elasticity, different factors moving the demand and supply curves in and out. None of it is all that mathematical though.

I would listen to Dan. He’s from the world of business, not the classroom.
 

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